The Fed and the Secular Decline in Interest Rates
Accepted, Review of Financial Studies
64 Pages Posted: 9 Apr 2020 Last revised: 2 Jun 2023
Date Written: November 21, 2021
Abstract
This paper documents a striking fact: a narrow window around Fed meetings captures the entire secular decline in U.S. Treasury yields. Yield movements outside this window are transitory and wash out over time. This is surprising because the forces behind the secular decline are thought to be independent of monetary policy. Long-term bond yields decline when the Fed cuts the short rate and when the Fed lowers its long-run forecast of the federal funds rate (the "dot plot"). These results are consistent with the view that Fed announcements provide guidance about the long-run path of interest rates.
Suggested Citation: Suggested Citation
, Available at SSRN: https://ssrn.com/abstract=3550593 or http://dx.doi.org/10.2139/ssrn.3550593